DP7659 Incentive Compatible Reimbursement Schemes for Physicians

Author(s): Winand Emons
Publication Date: January 2010
Keyword(s): credence goods, demand inducement, expert services, incentives, insurance, medical doctors
JEL(s): D82, I11
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7659

We consider physicians with fixed capacity levels. If a physician's capacity exceeds demand, she may have an incentive to overtreat, i.e., she may provide unnecessary treatments to use up idle capacity. By contrast, with excess demand she may undertreat, i.e., she may not provide necessary treatments since other activities are financially more attractive. We first show that simple fee-for-service reimbursement schemes do not provide proper incentives. If insurers use, however, fee-for-service schemes with quantity restrictions, they solve the fraudulent physician problem.